A classic Wall Street joke illustrating an important concept

Forgive me if you've heard this one before.

One sday in the markets, trader A decided to open bidding on a can of Olives. He offered it at $1. It was snapped up by B at $2, who sold it to C at $3. D jumped in at $4 and E finally prevailed at $5.

Proud owner E opened the can and found the Olives had gone bad. He went back to A and complained, " You sold rotten Olives! I want my money back."

Grinning, A said, "Son, those weren't eating Olives. Those were trading Olives."

Anything can be made into a store of value if everyone agrees. Western societies have had a fondness for gold and precious metals, but any material will do. The Mayans used feathers.

Oil and commodities are increasingly being used as a store of value as inflation concerns make the wisdom of relying on financial instruments seem dubious. But per the little story above, once participants quit seeing commodities as an inflation hedge, they will revert to their fundamental price level. And the indications increasingly are that those values are well below the price the market currently assigns them.

The cure for high prices is high prices :)

The cure for high -prices is high -prices and once the customers , enjoying these subsidies ,are increasingly exposed to world -price levels, their demand will fall.

From "Enjoy the Energy Subsidies While You Can," by Stephen Jen and Luca Bindelli:

A quarter of the world’s gasoline consumption is subsidised, and, in terms of population, half of the world uses energy subsidies. This policy has created an important distortion, whereby rising oil prices have been effectively prevented from destroying oil demand. Subsidies have artificially raised inflation in the developed world (through artificially high oil prices) and suppressed inflation in the developing world (inflation would have been even higher in the absence of subsidies). As fiscal pressures mount, some countries will be forced to incrementally remove these subsidies. The net result will be an unwind of these distortions. For currencies, I believe that the net effect will be negative for emerging countries, as this process will be stagflationary for them.

Economists tend to be less well-versed in supply conditions in the energy sector. But the current oil price increases are curious. They are not quite supply driven, and the fact that global demand is decelerating appears to be inconsistent with accelerating oil prices. While the logic behind the increasing structural energy demand from emerging makes a lot of sense, it is still difficult to justify how oil prices could more than double in 15 months, or rise by six-fold in seven years, unless one subscribes to the ‘Peak Oil Thesis’, i.e., we are at the steep part of the supply curve.

Right now, half of the world’s population enjoys gasoline subsidies, and a quarter of the world’s gasoline consumption is subsidised. While three-quarters of the world’s gasoline consumption is taxed, the level of ‘net taxes’ has actually declined as oil prices have increased, for various reasons. To show this look at the end- 2006, when crude oil was trading at around US$60 a barrel. Back then, only 10.4% of the world’s gasoline consumption was subsidised (compared to 22.2% right now). Essentially, what this means is that the extent to which the world has been subsidising its consumption of gasoline has actually increased, with the rise in crude oil prices.